By Anupama Ravindran
This article intends to highlight certain issues with regard to restrictions on refund of integrated tax paid on exports, for multiple business units having a single GST registration.
Section 54 of the CGST Act states that any person claiming refund of any tax may make an application before the expiry of two years from the relevant date. Explanation to Section 54 states that “refund” includes refund of tax paid on zero-rated supplies of goods or services or both. Further, it is clarified vide the Explanation that “relevant date” means, in case of goods exported out of India, date of loading of goods.
Rule 96 of the CGST Rules provides procedures required for claiming such refund. It enables refund of integrated tax paid on goods or services that are exported out of India. The rule states that the shipping bill filed by the exporter of goods shall be deemed to be an application for refund of integrated tax paid on export of goods. Refund is granted subject to a few conditions as prescribed under the rule.
Rule 96(10) of the CGST Rules states that persons claiming refund of integrated tax paid on export of goods or services should not have received supplies on which the benefit of Notification No. 48/2017-CT has been availed, that is, should not have received supplies under deemed export benefit.
Further, Rule 96(10) of the CGST Rules states that person claiming refund of integrated tax paid should not have taken benefit under Notification No. 78/2017-Cus, which is exemption for imports by EOUs, or benefit under 79/2017-Cus, which is exemption for imports against advance authorization.
That is, in effect, if the registered person has received any supplies under benefit of “deemed exports” or customs notification providing exemption from integrated tax and cess to Export Oriented Units and Advance Authorization holders, then the registered person is not eligible to claim refund of integrated tax paid on exports. The intention for the above restriction may be that if the person has received deemed exports supplies or has imported under customs exemption notification for EOU/AA holders, then refund of integrated tax paid on exports by utilizing ITC should not be available as refund.
The Rule can be interpreted as provided herein:
Rule 96(10) states that the persons claiming refund of integrated tax paid on exports of goods or services should not have
- Received supplies on which the benefit of deemed exports benefit has been claimed
- Availed exemption of duties of customs for imports by EOU, or Advance authorization holders.
The rule also does not make an exception for exports of different business units under same registration.
The rule does not also carve out an exception for time elapsed after which such exemption has been claimed. That is, if the benefit of exemption is claimed today, then, according to the said rule, the person is not eligible anytime in the future to claim the refund.
Worse still, the rule does not carve an exception even if the EOU unit has exited from the EOU on payment of duties. Since the rule reads that the person claiming refund of integrated tax paid on exports of goods or services should not have received supplies under deemed export benefits or customs exemptions, even if the EOU does not exist as of today, the registered person cannot still claim refund.
Consider a scenario where a registered person has multiple units within the same state, one unit being a DTA, and another unit being EOU or an Advance Authorization holder, wherein the DTA unit brings 90% of total revenue. This arrangement could be because the local market requirement is much larger than the export market, and DTA is handling local market and EOU is handling exports.
In this case, the registered person is not eligible to claim refund under Rule 96(10) of the integrated tax paid on exports even for the DTA unit under Rule 96. The DTA unit may prefer to pay integrated tax on exports to utilize large chunk of unutilized credit. However, although the DTA unit maintains a separate book of accounts, the restriction still applies, since Rule 96(10) states that “person” claiming refund should not have “received supplies” under deemed export benefit or “availed the benefit” of customs exemptions.
It may be noted that, GST provisions allow for multiple units, including DTA and EOU, within the same state to be registered under one GST registration. Therefore, the DTA also bears the brunt of the credit lying in the books, when actually the DTA unit has not received goods under the exemption notification.
There is scope to amend Rule 96(10) of the CGST Rules to allow these types of cases, and to read the benefits and restrictions applicable for each type of unit separately.
The alternative is rather simple and will achieve a workaround to the said rule. If the person who has claimed deemed export benefit or exemption as claimed above, and also maintains separate books of accounts, can very well split the registration to separate the DTA unit, from the unit which claims the exemption. In this case, the DTA unit is eligible to claim the refund from the separated registration.
Would this have been the intention of the restriction on refund? That multiple registrations have to be taken? That could very well have been implemented through Section 24 of the CGST Act stating that a EOU unit or a person who has sought or intends to seek advance authorization is required to be separately registered.
While GST has harmonized registration for the EOUs and DTAs, the registered person should not bear impact of restriction of the EOU on the whole registration and in turn render the Foreign Trade Policy ineffective or burdensome for them.
[The author is a Principal Associate, Lakshmikumaran & Sridharan, Bangalore]